Northern District of Georgia Finds No duty to Defend in Declaratory Judgment Action Dealing with Self-Funded Retention Provision of CGL Policy

The Court denied Georgia Pacific’s motion for partial summary judgment and granted the insurer’s motion for summary judgment, finding that an SFR that (1) expressly deletes language from the CGL policy providing for the payment of defense costs and (2) conditions payment of defense costs on the insured’s liability to pay damages beyond the amount of the SFR “clearly and unambiguously . . . [releases the insurer from] provid[ing] defense costs unless and until its liability to pay damages – beyond the amount of the SFR – under the policies has been established.”

Georgia Pacific argued that because the policy did not define “damages”, and common usage of the term “damages” includes defense costs, the insurer is obligated to pay defense costs under the CGL policy. To the contrary, the Court found that adopting Georgia Pacific’s interpretation of the term “damages” would effectively eliminate the language of the SFR that provides for the conditional payment of “claims expenses,” including litigation costs and attorney’s fees, from the SFR endorsement.

Also, the Court found that none of the underlying Complaints filed against the insured contained allegations of liability for which coverage was provided under the policy. In three underlying lawsuits, the plaintiffs alleged (1) failure to pay for products delivered to the insured, (2) misrepresentation regarding the amount of products that were delivered, (3) preference of vendors other than the plaintiffs by the insured, (4) that the insured induced certain expenditures by the plaintiffs in reliance on a contract, (5) violation of a Mississippi statute relating to trusts and combines in restraint of trade, and (6) slander.

In reviewing the allegations in order to determine whether coverage was implicated, the Court found that none of the first 5 allegations listed above fell within the policies’ coverage or asserted a claim of negligence entitling the plaintiffs to recover damages for mental anguish and anxiety.

Regarding the third allegation, Georgia Pacific argued that the allegation that Georgia Pacific preferred certain vendors over others was tantamount to a “discrimination” claim, which is covered under the CGL policy. While the Court agreed that “discrimination” was not defined under the policy, it found that “the only reasonable interpretation of “discrimination” . . . is a traditional civil rights claim of discrimination .”

Finally, the Court found that the slander claim was barred by the applicable statute of limitations and therefore no duty to defend was triggered by that claim, even if covered.

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About the Author

Michael Rust graduated from Emory University in 1980 and Emory University School of Law in 1983 where he was Notes and Comments editor of the Emory Law Journal (Law Review). Since that time, he has maintained an active trial practice in the state of Georgia both in State and Federal Courts. Mr. Rust teaches litigation as part of Emory University School of Law’s annual Trial Practice Program. He has received AV rating from Martindale Hubble, the highest rating afforded to lawyers by their peers.